You are over thinking things. The market isn't going to get every event "right There are many dynamics to the price action of google and netflix and none of them involve some long term philospohical belief. Expectations of the future (1-2 years generally), shot interest, macro events on that day, a large fund manager's breakfast all can cause the movements you see. In January, Netflix rallied like 30% on their earnings. That was unexpected. Last quarter Google move 1.5% and it was expected to move closer to 4%
Know a couple days have passed but would definitely be interested in hearing the analysis if you still care to share...
I know, I'm a terrible person...took an old lady's parking spot this morning too. The point is to learn from the process...who cares if it's a live opportunity or from years ago.
It's very tempting to look at RV-IV spread do establish richness and cheapness. However, in single stocks overly large RV-IV spread (in either direction) is indicative of either an upcoming event or a recently passed event in most cases. There are a few ways of looking at it, but in general, you want to "de-event" the realized volatiliy before comparing it to implied. Example: if you take recent GOOG vol, 21 BD historical vol is going to be around 50 and Nov expiration at 21 vol is a "screaming buy". However, if you look at the realized volatility where you have stripped out returns bigger then 2 standard deviations, you see that realized vol is about 16. was it like taking candy from a baby?
Actually that more aptly describes my swiping her SS check from her purse...known as the 'nursing home arb'...who needs var premium... (Georgi this is a joke, no need to admonish me) Thanks, good stuff. It seems like your ET benevolence is at an all time high lately. Don't mean to be greedy and abuse it, but wanted to pose one/two more loosely related question(s). As is true in pretty much all areas of trading/business, the best opportunities for large returns are illiquid and/or not scaleable. This is very apparent to me when testing vol strategies - the bulk of returns come from names with massive bid/ask spreads. Have you developed some sort of heuristic on what fills to assume when doing strategy testing in illiquid names (e.g. assume will pay 75% of b/a spread)? This choice has a massive impact on testing results and I'm never confident that the results I'm seeing aren't just an artifact of the large spread. The second part to this is do you have any advice on execution tactics in illiquid names to cut down on the amount of spread paid? (something automated?) I've tried a few approaches to getting decent fills in illiquid names but they've never amounted to much...in fact, I always end up asking myself why I don't just remote market make these things in small size and allow a portfolio approach to hedge away macro vol risk.
The earnings move was perfectly priced in - the 57.5 weekly straddle went out at 13.6% last night and after-market move was pretty much in-line.
Boring markets, so I got time on my hands Well, I actually stay away from anything illiquid (given that I run a large institutional book). For a non-market-maker, the general assumption on execution is that you are always going to get shafted and should plan accordingly. Of course, for a market-maker, the general assumption is that you will always going to get stuffed with a position you really don't want to have.